Life Insurance – Should You Care If You’re Dead?
The thing about life insurance is, you have to die to reap its benefits.
First, before we talk about life insurance and why you should care, let’s go over some of the “inside” life insurance terms agents like to use to liven up parties:
Premiums – Those are the payments you make to the insurance company. Depending on the insurance product, the money generally covers your insurance and administrative costs.
Beneficiaries: These are the people who receive money when the insured person dies. Beneficiaries are usually spouses, children or parents, but you can choose anyone you want… even a friend.
Death benefit: This is the total amount of money the beneficiaries will be paid when the insured person dies.
As we mentioned in our blog Do I Really Need Insurance?, think of it this way: insurance is a way of managing risks.
Why Should I Care About Life Insurance?
Here’s the deal: You don’t have to care about life insurance. In reality, it’s just a safeguarding tool. However, if you have a spouse, a partner, children, or other people who rely on you, and you do care about them, then having life insurance is one of those things that we must accept as necessary.
Imagine if one of the last things that flashes before your eyes, is the image of the people you love suffering even more heartbreak because they are stuck paying your debts and creditors.
That may be a little dramatic, but you get the point: life insurance is important because when you die, your income disappears. Without life insurance, your dependents are without support.
Even if nobody depends on your income, there are still costs associated with your death, like burial and other end-of-life expenses. Fortunately, there are many life insurance options that will cover those expenses, and protect your family’s home, mortgage, lifestyle, even the cost of your children’s education. There it is: the risk, managed!
Types Of Life Insurance
Term Insurance – The simplest form of life insurance.
- Term Insurance pays out only if you die within the policy’s “term”, typically from 1 to 30 years.
- Level Term Life Insurance means the death benefits remain the same during the length of the policy.
- Decreasing Term Life Insurance means the death benefit decreases, typically in one-year increments, over the duration of the policy.
Whole Life / Permanent Insurance – The Cadillac of coverage.
This insurance pays a death benefit no matter when you die, even if you live to celebrate your eleventy-first birthday (s/o to Bilbo). Whole Life insurance policies usually have fixed death benefits and fixed premiums for the life of the policy.
Universal Life Insurance and Variable Life Insurance -The NKOTB of policies.
Introduced in the late 1970s and early 80s, these are both types of permanent life insurance, meaning the policies last for life and contain a cash-value component. However, there are two key differences:
- Variable life insurance contains a cash-value component with investment options that work like a mutual fund.
- Universal life insurance contains a cash-value component that grows based on the current interest rate set by the insurer.
How Is Life Insurance Priced?
A person’s date of birth is the most important variable when determining life insurance premiums, but there are several factors that can affect cost:
- Gender (women tend to live longer).
- Personal and family medical history.
- Smoking habits.
- Hobbies (skydiving vs knitting).
- Driving record.
We know life insurance can seem overwhelming. It’s not an easy topic, and sometimes it’s discussed at a difficult time. That’s why we’re here: To help you make the right decision, and guide you to the life insurance product that will best support your loved ones after you’re gone. Contact us to find out what kind of policy suits your needs.